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Edited Transcript of 6858.HK earnings conference call or presentation 29-Nov-19 10:59am GMT

Interim 2020 Honma Golf Ltd Earnings Presentation

Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Honma Golf Ltd earnings conference call or presentation Friday, November 29, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Julia Chen

Honma Golf Limited - IR Director

* Weiwen Bian

Honma Golf Limited - CFO & COO

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Conference Call Participants

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* Paul Quah;Forager Funds Management Pty Ltd.;Analyst

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Presentation

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Operator [1]

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Good evening, ladies and gentlemen. Welcome to the conference call. Our chairperson today is Julia. Julia, please begin your call, and I'll be standing by for the Q&A. Thank you.

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Julia Chen, Honma Golf Limited - IR Director [2]

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Thank you. Good evening. On behalf of Honma Golf Limited, welcome and thank you all for attending the company's financial year 2019 and '20 interim results analyst presentation. I'm Julia Chen, Investor Relations Director of Honma Golf. Sitting together with me is Ms. Veronica Bian, Chief Financial Officer of the company.

At today's conference, Veronica will go through the company's interim results and share with you the outlook in the second half of this financial year. After the presentation, we welcome all questions from attendees.

Now I'll hand over the microphone to Veronica to go through the result highlights with us. Thank you, Veronica.

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Weiwen Bian, Honma Golf Limited - CFO & COO [3]

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Good evening, everyone. My name is Veronica. I'm the CFO of Honma Golf. I'm very pleased to have the chance to communicate with you about the first half results of Honma, which was uploaded just now. We have also prepared a deck to help guide today's discussion, and I hope that you have already reviewed the deck.

So if you could just go to Slide 3. I think this is an overview of HONMA, the origin. So we are the #1 premium golf brand, has a history of 60 years, has been dedicating itself to traditional Japanese craftsmanship as well as quality and performance in the products. I think when you look at the pie chart to the lower right, you'll be seeing the revenue breakdown by product, by region and by channel. In the first half, sales came down by 7% on a comparable basis. And we altogether generated $98 million sales.

So when you look at the -- let's say, the by product sales mix, you will see an increase, a fast increase in the sales revenue from balls, from apparels. We will be touching on this later on. I think all of these are growth categories for the HONMA company. And by region, I think Japan's value share came down slightly; Korea come up, let's say, substantially; China follows. So these 3 countries still account for more than 85% of our top line, and therefore, our home market. I think the channel mix has remained more or less constant to the mix that we have recorded as at the end of the last financial year.

And when you go to the next slide, Slide 4, it's a high-level revenue and also P&L overview. I think we have talked about the sales, which I will provide more details in the subsequent slides, gross margin as well, I think, and the operating margin. And then on net cash, we remain strong. And we have also proposed to the Board that we make a further interim dividend at the same amount as we did last year. So this dividend plus the special dividend, which was already distributed and paid in September, would have resulted in a 4.6x increase of this year's dividend as compared to the year before.

So Slide 5 is a very important slide for me to walk through with you, to help you understand the dynamics in the company's product portfolio as well as its revenue. So you will see that the revenue in the first half came down by 7% comparably, 7.9% nominally. I think the decline was primarily due to 2 reasons.

One is seasonal. I think we'll be catched up in the second half. So the premium -- let's say, the super-premium product called BERES was phased out in first half, expecting a new launch in December. So this is a regular phase-out, which has resulted in sales loss in first half as compared to the high base of last year.

We also had a one-off impact from the decision that we took last year, which we made you aware of. I think in the second half of last year, during the final confirmation of our growth strategy, especially those pertaining to the U.S. market, we have made a conscious decision to expand the TOUR WORLD family so that we will be able to focus on 2 product categories for clubs and then focus on the 2 most interesting consumer segments from a HONMA point of view.

So one is the super-premium segment, which is going to be addressed by the legacy product that we have called BERES. The other is the premium performance segment, which is by far the largest and also fastest-growing consumer segment in most of the markets. And we traditionally have been, let's say, addressing this market through our TOUR WORLD products. But during the confirmation of the U.S. strategy and also by lots of consumer surveys, and let's say, dialogue with the newly created R&D hubs in the U.S., we tend to realize that 747 or TOUR WORLD was designed for a too narrow group of consumers.

So with that, we have decided to expand the TOUR WORLD family to introduce a performance enhancement tool, while at the same time, to downgrade or place down the Be ZEAL family as a channel and country-specific product. So this has led to a sales decline of Be ZEAL by 78%. At the same time, when you look at the lower part of the tab, you will see that TOUR WORLD sales came up by 73%; apparel by 53%, balls by 53.5% for the fourth year in a row; and then I think the various growth in the countries.

So overall, I think we see the first half results as disappointing but still in line with the various decisions that we have taken. We are also very comfortable and also confident about the significant revenue growth that we were able to deliver in all of the growth markets as well as growth categories.

So if you can then flip on to Slide 6. You will be seeing the growth profit trajectory over the last couple of years and also first half as compared to first half last year. You will see that the first half gross margin ratio has come down to 49.7%, which is still decent but showing a 9.7% -- or 9.1% decrease versus the year before. So this 9.1%, I think, 4% attributed to the usual, let's say, negative mix impact from products as non-clubs contributed to higher sales revenue than the year before, plus the seasonal impact from BERES, which we will catch up with in the second half. And the other half basically related to the one-off impact that we have had as a result of the decision on Be ZEAL.

So next slide, Slide 7. I think it's a slide that provides you with an overview on the operating profit, net operating profit, SG&A expenses as well as the breakdown of the SG&A expenses. I think for the first half, we have showed a very minor loss on an operating level. Net operating profit was about 3.7% because of the deferred tax assets, which is a credit to P&L. In terms of SG&A, I think the value increased by circa JPY 5 million representing, let's say, personnel increases primarily relating to our U.S. expansion as well as A&P investments plus distribution channel expansion, which we have mentioned to you before. The overall percentage also increased because of the sales decline. But let's say I think the major investment still goes into personnel, A&P and footprint.

Slide 8 speaks about the balance sheet structure, our cash position, which remains strong, let's say, after the special dividend and our gearing. I think for the first half, our gearing increased from 13% to 24%, but our net cash position isn't necessarily affected.

Slide 9 is a simple slide on the working capital. You will see that the receivables have more or less stayed stable. Let's say the payables have increased by 18 days, resulting from the continued improvement in supply chain and also supplier management. In terms of inventory, to help you better understand the increases versus the end of March, we have broken down the, let's say, inventory turnover days by asset classes. You will see that the raw material has remained more or less constant. Let's say work in progress improved. Finished goods increased by close to, let's say, 25 days primarily because of the, let's say, the September end. Let's say the September end is usually, let's say, a stock up period for apparels, for our balls to be launched in second half. And this year, let's say we were also affected by the XP launches. So all of this have contributed to a jump in finished goods as well as the total inventory turnover days. But we are comfortable that by the end of March, we should be able to show the usual, let's say, improvement versus the year before.

Now I think from Slide 10, we're meant to give you some color on the business performances and developments in the first half.

So Slide 11 is a snapshot on what has happened in the first half. I think some of these were touched upon during the call before. So let's say there are 4 areas that we wanted to walk you through. I think first, relating to the product portfolio optimization. I think we spoke about the reason why, let's say, we wanted to focus on 2 products rather than 3 products. But this is not necessarily a reversal of our growth strategy. But it's a confirmational underpinning of our growth strategy after having reviewed the specifics in the U.S. market. So we eventually wanted to build an even stronger franchise in the TOUR WORLD family. And with this, we decided to expand the TOUR WORLD family and to place down the Be ZEAL family. I think the first half results in terms of TW is a clear confirmation of our growth strategy.

I think the second, let's say, growth pillar comes from balls, apparels. I think first half, you have seen a continued growth in the ball sales, let's say, a first, let's say, visible growth in the apparel sales even though, let's say, we just had one season from the new collections in the first half. I think from September, for people that are in China and also in Japan or Korea, you must have seen the launch of the new fall/winter selections. And in a month time from now, we will be activating the spring/summer '20 collections. So based on the prebook that we have had, we are very confident that we will be able to show a decent sales growth in apparel by the end of the year, as we communicated to the market.

I think the third point, which is worth mentioning, is about the U.S. and also European, let's say, expansion strategy. I think in both markets, we have seen very visible and steep growth rates in terms of TOUR WORLD. These are very, very important products to the future growth and also expansion in both markets. I think first half as a whole, North America suffered because of the phase out of the previous generation from the BERES, which still accounts for more than 70% of the top line. But we do believe that on a full year basis, XP as well as the new BERES will be able to, let's say, deliver a very decent growth of, let's say, no less than 50%.

Europe and also North America started implementing, let's say, a direct-to-consumer model. So I think in October, we have opened our first shop-in-shop, and in fact, a stand-alone shop in Paris. And this will be followed by a few more stores in the U.K., in Spain and also in Germany, all in prime locations. In North America, I think following the appointment of Mark as well as the creation of a very strong local professional team, we were able to convert in first half 13 shop-in-shops using this new store images. We were also let's say, ready to launch more hubs from December onwards. So there are more details when we move down the slide.

And the last point is we -- let's say, is a continuation of the investment that we made into the brand. I think the HONMA brand is a brand with a lot of history but it's also a brand laden by history. I think in -- since the last 1.5 years or maybe 2 years, we have done a lot of things to modernize the brand image by new products but also by, let's say, revamping the site, revamping the social media platform, the e-commerce sites. We are also adding middle offices, the SAP, which was launched, which will allow eventually consumers to be placing customized orders online and be able to test them, let's say, off-line, and therefore creating a complete ecosystem around the brand, its product and its consumer.

So now on Slide 12. Again, this is what we've spoken about, I think, when we talk about the first half sales performance as well as why we wanted to change the product portfolio. And it's, let's say, very serious. What I wanted to mention is to the right, you'll be seeing, let's say, 2 diagrams. I think the top is basically the product lineup as of now. So Be ZEAL is being sort of moved to the side. But TOUR WORLD is being expanded to include 2 series. I think the lower part is basically our consumer segmentation philosophy, which will remain. I think we are just trying to tap more into TOUR WORLD brand.

I think as a company with plus/minus 200 million top line, let's say, what we realize is the more we move out to the -- out of the comfort zone, especially the Asian markets, the more it is difficult for us to maintain an awareness, and a stronger awareness in 3 brands. So in most of the markets that we were in, be it Europe or be it the U.S., the team have always consciously made a decision to focus on TOUR products. And this, plus the confirmation of the U.S. strategy, made us to realize that the TOUR WORLD family, the products are designed too narrowly for the top players. So we need an XP which was just activated in September, something that will help the avid golfer, but whose score is not as good to improve their course -- improve their results on the course.

So I think this has resulted in some temporary sales decline. But we are very confident that the TOUR WORLD with the investment into the tour presence, Justin Rose, with the new investment into the U.S. market, distribution and also all of the investment that goes into the digital platform will help us to build, let's say, a much stronger, let's say, performance impression but also equity for the HONMA brand.

So Slide 19 (sic) [Slide 13], I think it gives you more details about the growth that we were able to deliver in the first half in balls as well in apparels. We do have a strong belief that this growth will continue, let's say, in the second half, and therefore, let's say, be visible on a full year basis.

On Slide 14, we have presented to you again the -- let's say, the series lineup for the apparel business. So we basically have 3 labels. The Black Label really sits on top of the collection. It's a very exquisite and also small, let's say, collection for the premium, let's say, for the super-premium consumers. I think these apparels, as you could see on the right, it could be worn on a course. It could be also worn in a business, let's say, environment and also in a social environment.

The Red Label is basically for, let's say, the golfers to satisfy the golfers' needs on the course. We have also some images, [previews] from the current collection.

The White Label is basically something that really drives the volume, especially in Japan and -- sorry, especially in China and also Korea where, let's say, there is a -- an existing golf population but also a larger pan-golf population who aspire, let's say, to be a golfer and also who wants to have some fashionable, let's say, athletic wear for their day-to-day wear. So the White Label was designed just for this consumer segment.

And then on the next slide, Slide 15, I think you will see images of the new stores being opened in Japan, in China, in U.S. in Carlsbad, in Paris. We have also opened more stores in Korea, in Taiwan and also in Hong Kong, but we were not able to present you with all of these pictures. So the total number of store increased by 6 retail self-operated stores, increased by 6, but we opened 12 stores as a whole. We continue to reduce, let's say, the less efficient stores. But in the second half, you will be seeing an acceleration of the new store openings. All of these were seeded already since the beginning of last year.

And then when you look at the third-party retail footprint, so we have increased the POS again primarily because of the successful expansion in Europe. I think the conversion of existing POS into premium shop-in-shop is not being accounted for as an increase, but they do, let's say, represented good opportunities for us to occupy more shelf space and also with a consistent brand image in new markets, especially in the U.S.

I think the subsequent slide provides you with a lot of, let's say, images, visions on what we are doing, what we have been doing continuously to improve and also redefine the brand as a dynamic, modern, global brand. We mentioned to you that we revamped the global site in January this year. And then we also let's say, refreshed the social media platforms in most of the markets using Twitter, Facebook, LINE in Japan, Korea, but also WeChat in China. I think we have also been publishing very active, let's say, content marketing materials on these sites, but again, in a very consistent manner.

I think the next slide gives you an impression on the new website and CRM platforms that we were able to activate in Japan and more to come. I think the Slide 18, let's say, provides you with images from the consumer events from, let's say, the press releases that we had in the U.S., where Mark King was the Chairman. I think all these slides would give you some better impressions on where we are investing into in terms of the brand awareness, consumer engagement.

There are 2 things that we wanted to particularly call out. I think on Slide 16, you'll be seeing that after we have revamped the site, we have applied -- we have employed marketing agencies and used Google Analytics to help us track, let's say, site traffic. We have altogether seen close to 4,000 -- sorry, 400,000 new visitors to the site. I think not to mention that we have less than 30,000, let's say, visitors on the 6, 7 scattered websites that we used to have. And we were very proud that after the new site was updated, we were already able to generate 2 million page views, let's say, for the period between January and November. So we are now in the next phase of -- let's say, in the website utilization as an effective tool for marketing.

I think on Slide 18, you will also see consistency on the consumer events that we've been hosting in parts of the market. So just in first half, we hosted close to 2,500 consumer days. So these are typically a 1-day event with existing and also potential consumers, where they will have the chance to experience the product, experience the brand but also have the chance to place an order but get familiar with ourselves. So when you look at the numbers, I think within the first half, we are almost conducting 18 -- sorry, 15 consumer events on a daily basis. We also felt that this is a very interesting and also useful enrichment of our engagement with the consumers in the retail space, in the third-party retail space but also online. And this will continue.

Now from Slide 19, I think we have a few slides to give you in a business overview in first half by major markets. The first slide is about Japan. I think Japan, as we always said, is the second largest market in the world, about 12 million golf population by the definition of the golf association, which means that they will have to play 1 round of golf per month at least. And then in Japan, I think we have had a sales decline in first half. I think Japan was more severely affected by the decision on Be ZEAL than the other markets. But the balls as well as the apparels, they have shown, let's say, 68% and 48% growth. I think -- but this was, however, not sufficient enough to offset the sales decline in the clubs primarily resulting from the Be ZEAL. But as with other markets, you will see that the TOUR WORLD sales went up by 13.6%, and this will continue as we start to put the Be ZEAL impact behind us.

Next slide is about Korea. Korea is the third largest golf market in the world, a very interesting market in that it's fast-growing and has one of the highest golf population as a whole. I think in Korea, about 15% of the total population play golf by the same definition. So this is a very, very interesting young golf market and yet very fast-growing and dynamic. For the first half, the club sales went up by 65%, thanks to the continued partnership that we had with Kolon. Ball sales came up as well by 47%, following the implementation of a local sales team for the balls and for the apparels. The apparel business will start to show growth trajectory in the second half. I think first half, we were laden by the political tension between Korea and Japan, and we have slowed down [by our sales consciously].

Next slide on China. First half in China, we have observed very similar trends in apparel as well in balls. The overall sales went up by 9.4%. China have also increased, let's say, enjoyed the fastest-growing number of POS expansion, whether through our own network or through third-party retailers. But the Hong Kong top line came down by 52% for reasons that we all know. We actually opened a new store in center of Hong Kong, but it was almost right in the middle of the war zone. And we were not even able to open for half of the time for the second half of the year.

United States. I think here, we have prepared 2 slides. I think the first slide is on the business. You will see that the first half, we have seen a sales decline of 22% primarily because of the fact that first, BERES still accounts close to 70% of the top line in the U.S. and BERES is being phased out in the first half. The new products will come in, in December. And secondly, the XP, the new product was launched in the U.S. in the middle of November -- sorry, in the middle of October. But based on the sell-through that we have seen in the first -- since the product was launched for 5 weeks, we are very comfortable that we should be able to gain back the time lost in first half and be able to be on track on the growth that we committed to you.

I think in terms of the TOUR WORLD, some early signs of success. I think even though XP was not activated in first half, TOUR WORLD does enjoy a lot of momentum and increased almost by 205%.

And I think U.S., the most interesting and also most successful part of the first half result is the expansion of our direct-to-consumer distribution model. So just in first half, we have actually converted 13 shop-in-shops in the United States. We have also opened a new HONMA House in Carlsbad. We are ready to launch 9, let's say, hubs in the Sun Belt state of United States. These are very, very important, let's say, retail presences that we will be having at a premium locations. Some are actually permanent. Some are mobile. And I think for those of you who will be in the U.S. or who are in the U.S., we would be more than happy to provide you with the addresses so that you could have a chance to experience all of these new HONMA experiences.

Now the next page, 23. I think in the last results call, we have mentioned to you how we wanted to go about the distribution in the United States. I think, let's say, we have pondered between the 2 different avenues, either by investing massively in advertisement and therefore creating awareness, let's say, among the golfers or by creating a unique distribution model so that consumer have the chance to experience the product, experience the brand in one go. So we have decided to go by the, let's say, retail channel because we felt that this is a most effective way to spend the dollars but also the most successful and also efficient way to convert sales.

So on this page, you'll be seeing a diagram. So the whole distribution footprint will be based on one HONMA House, which has been opened already in October in Carlsbad, by, let's say, 30 shop-in-shops, 13 of which has been already implemented; by 30 to 50 HONMA hubs, none of which will be implemented in a month's time from now. And then what's connecting, let's say, all of these retail presences, self-operated or third party, will be the digital platform.

So as we speak, we are, let's say, implementing a further, let's say, update or upgrade of the U.S. digital capability. So we are hopeful that we will be able to implement the first, let's say, customization portal, which is going to sit within our website but also be accessible from POS machine, from the fitting ramps, from the website and also from the e-commerce site. So the consumer, wherever you touch the products, you will always fall within our reach. So you can either choose to buy the products off-line or you can choose to customize your products through a [van], through a retail sales representative or online once you have had the retail -- let's say the off-line experiences. We felt that this is the best way to create brand awareness in a very fast way and to also create attachment, loyalty, let's say, to the brand and repeat frequency. So that's about U.S.

Finally, something about the European market. I think first half have seen the European sales grow by 9.5% -- sorry, 9.4%. And I think similar to the other markets, the TOUR WORLD family have enjoyed a significant sales increase of close to 7x in the U.S. I think by moving to the U.K. markets, we were able to expand the number of POS by close to 100 and be able to start converting some of those POS into shop-in-shops.

Now I think before we make a pause, I would like to reemphasize the growth strategy of HONMA, which is being detailed on 26. I think on this page, what we are saying is not different from what we have been communicating to you before. So to the left, you will be seeing, let's say, the core brand value, which is Japanese craftsmanship and premium performance. And these are the 2 values that we have had and something that we have to continue building on, especially the brand as a premium performance brand. And then I think with these 2 core brand values, I think what we fit best with is the consumers in the super-premium segment as well as consumers in the premium performance segment. I think this sort of redefined consumer focus have led to the position to place down Be ZEAL, to further expand the TOUR WORLD product offerings but also the first half, let's say, sales decline.

So when you look at -- to the right, I mean how we go about the growth strategy, I mean it's going to deliver through product, through channel and through increased sales conversion. So in terms of products, we have talked about the changes that we are implementing, infusing in terms of clubs. I think for the non-club categories, I think the ball will continue the successful ride, especially after we have intensified our channel distribution in Japan and also created a dedicated team in Korea.

I think the apparel business will start to show a visible improvement now that we have, let's say, designed and created 4 collections already. In fact, we are already -- the design team is already working on the 2021, so '21 fall/winter, which is going to be launched in a year's time -- actually, 18 months' time from now. So it's always ahead of, let's say, curve kind of development. And so as long as the pipeline is healthy, I think there is no reason to suspect that the apparel sales will not be able to continuously show the trajectory that we were able to show in first half.

So in terms of the channels, I think we are sticking to the brand, let's say, origin, which is retail, self-operated stores. But we are updating the retail images. We are also let's say, bringing the retail concepts into new markets and make it part of the brand awareness creation. I think we are also at the same time, let's say, intensifying our partnership with the party retailers by converting shop-in-shops within the original shelf space, by introducing consistent and also modernized store images. And then on top of this comes the e-platform, which is going to be a very efficient way of linking consumers together, linking consumers with the brand and also with the influencers that they actually believe in.

I think the last point or the last pillar, let's say, to the whole growth is the continuous sales conversion. I think this will have to take time. And also let's say, the investment that we already made into the TOUR presence, leading to the social media platform, the e-commerce platform will continue to help us generate higher awareness and also consumer loyalty. So all of this is a supporting or actually enabling factor for the sales growth strategy that we have developed for HONMA brand.

So I think the last part of the slide is appendices. I think there, you will find all of the, let's say, financial informations, which we are happy to address. And as I've been talking for 3 quarters of an hour, I'm going to make a pause here so that you could have the chance to ask questions if you have any.

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Julia Chen, Honma Golf Limited - IR Director [4]

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Thank you very much, Veronica, for a detailed presentation. So we'll now proceed to the Q&A session. And so operator, could you please give instructions on raising questions to the attendees, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Paul Quah with Forager Funds in Australia.

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Paul Quah;Forager Funds Management Pty Ltd.;Analyst, [2]

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Veronica, that was very detailed. Just -- can I just start with maybe trying to understand how much more of Be ZEAL is in the finished goods on the balance sheet?

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Weiwen Bian, Honma Golf Limited - CFO & COO [3]

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Oh, I think that's a very good question. So we have about, I would say, USD 3 million, which is still sitting on the balance sheet, mostly because of the returns that we have received in the first half. I think because you are very familiar with the HONMA, let's say, history, the Be ZEAL product is going to no -- will no longer be a focused product, but it will continue for some of the markets but also some of the channels.

For example, in Japan, I think Be ZEAL at times accounted for 15% or sometimes 17% of the top line. It's still a very much welcome products, especially by some of the retailers who wants to have unique products. So in Japan, it will remain as a channel-specific product.

And in Korea, I think sometimes, Be ZEAL was about 30% of the top line. I think in Korea, there is a special, unique situation where luxury brands, let's say, to the extent they have a beginning level, let's say, series, it's always very welcomed. I think for that reason, Be ZEAL was setting very well in Korea. So we are now in discussion with Kolon just to find out in what way they would like to have Be ZEAL be continued in the Korean market.

So I think, yes, we still have about USD 3 million products sitting in our balance sheet. But this product is not useless products, if you will.

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Paul Quah;Forager Funds Management Pty Ltd.;Analyst, [4]

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Right. And if I can just follow-up. So if I look at the aging analysis of the group's inventories, and I see that, I guess, there's a bit of aging then year 2 to 3 years, is that -- what is that relating to?

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Weiwen Bian, Honma Golf Limited - CFO & COO [5]

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Okay. So I think when you look at our aging, I think what's different maybe from the other company is that our aging is being prepared based on the year that the products is being launched. So not when the products are being capitalized or manufactured. So our aging is actually a more prudent or actually more conservative view on the aging. So I think -- if I'm not mistaken, the, let's say, products that are -- let's say, inventories relating to products launched in the last 1 to 2 years accounted for 75% of the total inventory. 25% goes into the balance. So Be ZEAL sits in that above 2-year inventory.

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Paul Quah;Forager Funds Management Pty Ltd.;Analyst, [6]

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Okay. Okay. And maybe if you can just give some guidance in terms of second half. How much more, I guess, is the impact of Be ZEAL on top line? Because obviously, it was a bit of a shock in terms of the magnitude as to how much it affect the top line in the first half. Just wondering how much more has to -- will come through.

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Weiwen Bian, Honma Golf Limited - CFO & COO [7]

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Okay. So I think in terms of the Be ZEAL negative impact, it's already done. It's already a done deal. In fact, we will be selling, let's say, the products that we took back from the market to a dedicated channel, et cetera. So it will actually bring positive sales, let's say, but at lower margins, not negative, a lower margin.

I think in terms of XP, we do expect, let's say, a very steep growth trajectory from, let's say, products that were already activated in Japan, in the U.S. but also in Europe. XP, I'm not sure if you have had a chance to take a look at it. It's for the double handicappers. So whoever has played with XP, they have all, let's say, said this is a great product. So easy to play. I think they have received very well recognition in the U.S. because TOUR WORLD isn't known in the U.S. For Japan, I think we are trying to build that close linkage of XP with that TOUR WORLD family, which already has a certain market status. And then the same, let's say, same communication that we are doing in Korea.

So I think second half, you will see -- be seeing a lot of the growth coming from XP, from the new BERES 07. I think the prebook went very well and then from the apparels. So I think in second half, you will be seeing maybe a much steeper growth as you have seen in the early years. On the full year, we are still sticking to the original guidance of a high single-digit growth, let's say. Yes. This is what we have anticipated as of now.

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Paul Quah;Forager Funds Management Pty Ltd.;Analyst, [8]

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So you're saying that XP and apparel can offset whatever sales that you had in the second half of last year from Be ZEAL?

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Weiwen Bian, Honma Golf Limited - CFO & COO [9]

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Yes. Be ZEAL was anyway a smaller, let's say, category than TOUR WORLD. And then in the second half, I think you basically will see the BERES new products, which also affected negatively the first half, but it's a seasonal impact. I think Be ZEAL was sort of a one-off impact, which we will recover because of XP and because of the sell-through of some of the older products that we carry in our balance sheet.

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Paul Quah;Forager Funds Management Pty Ltd.;Analyst, [10]

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Okay. Okay. And just to also clarify on the China sales, is that -- I'm not sure if I'm seeing a typo here in terms of -- is it sales increase or decrease of 9%?

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Weiwen Bian, Honma Golf Limited - CFO & COO [11]

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Increase. Mainland in China.

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Paul Quah;Forager Funds Management Pty Ltd.;Analyst, [12]

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In China?

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Weiwen Bian, Honma Golf Limited - CFO & COO [13]

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Yes. So if you look at -- sorry.

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Paul Quah;Forager Funds Management Pty Ltd.;Analyst, [14]

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Yes. Just Page 16 of the announcement on the geographic breakdowns. The China one...

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Weiwen Bian, Honma Golf Limited - CFO & COO [15]

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Oh, the total came down. So let's say China is always -- so Mainland China and Hong Kong, they are being clumped together. And then when you look at Mainland China, it actually went up by 9.4%.

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Paul Quah;Forager Funds Management Pty Ltd.;Analyst, [16]

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Oh, I see. You've separated out Hong Kong, and Hong Kong comes down. I see. Okay.

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Weiwen Bian, Honma Golf Limited - CFO & COO [17]

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Yes. But because Hong Kong came down by 52%, I think the overall sales suffered.

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Operator [18]

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(Operator Instructions)

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Julia Chen, Honma Golf Limited - IR Director [19]

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Ladies and gentlemen, if there's no more questions coming up, so that will be the conclusion of today. Thank you very much again for your time to joining us on a Friday evening. Have a good weekend. Thank you.

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Weiwen Bian, Honma Golf Limited - CFO & COO [20]

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Thank you and Happy Thanksgiving.

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Operator [21]

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Thank you. Thank you for your participation. This concludes the conference.